Expect Another Strong Employment Report Next Week

Lost in what is one of the lowest trading volume weeks of the year, and a really sleepy August month in general where many folks are getting to use some vacation time before markets start getting serious again in September after the Labor Day Holiday was another week of better than average economic data.

Initial Jobless Claims

I will avoid the minor revisions, and stick with the reported numbers but Jobless claims had a stellar month of August. First on 8/7 we had 289k Initial jobless claims, then on 8/14 we had 311k jobless claims, and on 8/21 we had 298k, and we close out the month with another 298k Initial jobless claims. The 4-week average is 299,750 for the month of August.

The underlying fundamentals in the job market keep getting better each month, and the manufacturing reports and other economic surveys all showed strong employment components which likewise support the strong showing this month for Initial Jobless claims.

We will get a first look at private payrolls next Wednesday with the ADP Employment Report which will set the tone for next Friday`s Employment report, and the jobless claims data for August suggests another plus 200k employment gain for the month, but just how robust is the question.

While much of the market focus for the month was on Fed Policy and Geo-Politics, the economic data has been coming in better than expected for the entire month; shoot even housing data on the whole has been coming in better than expected, so I am leaning towards a 250k plus Employment Report for next Friday.

If we get another strong employment report next Friday, this will really up the ante for the rest of the September economic data moving into the all-important Wednesday September 17th Quarterly FOMC Meeting Announcement, FOMC Forecasts and Chair Press Conference where many market participants have noted will potentially be when Janet Yellen signals to financial markets the Rate Hiking Timeline.

Ergo expect participants coming back from vacation to watch the ADP Employment Report real carefully, and early positioning to begin ahead of the Friday Employment Report, and if we get another strong employment report next Friday, expect some major positioning in front of the critical quarterly Fed Meeting on the 17th, with all hell breaking loose from a portfolio reallocation standpoint for the fourth quarter if Janet Yellen signals the Rate Hike Timeline for financial markets, and it is sooner than currently priced into financial markets.

Moreover, even though the mid-summer timeline for the first rate hike is theoretically priced into financial markets, in actuality as JamesBullard has stated several times, the market is severely complacent with actually positioning itself for even this mid-summer rate hike, procrastination at its finest! And if the Timeline gets moved up to March, or hinted at in the FOMC Meeting, Forecast or Press Conference this will trigger the start gun for some serious ‘portfolio rebalancing’ in many asset classes.

Therefore, September is not going to be nearly as sleepy as August from a trading standpoint, and probably everything that worked in August will get “taken out to the woodshed” in September. Expect a ramp up in volatility (for real this month), and traders better bring their seatbelts this month as I expect major market moves in many asset classes like currencies, precious metals, credit markets, stocks and bonds as the economic data is just too good for the Fed not to move the first rate hike up to March of 2015. It all gets started next Friday with the highly anticipated Employment Report for August!